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CHAPTER FOUR THE MANAGER AS A DECISION MAKER

Chapter ContentsOVERVIEW OF THE CHAPTER....................................................................................................................2

LEARNING OBJECTIVES............................................................................................................................2

KEY TERMS..............................................................................................................................................2

LECTURE OUTLINE...................................................................................................................................3

LEARNING OBJECTIVES REVISITED.........................................................................................................14

LECTURE ENHANCERS............................................................................................................................17

NOTES FOR TOPICS FOR DISCUSSION AND ACTION.................................................................................19

NOTES FOR BUILDING MANAGEMENT SKILLS.........................................................................................22

NOTES FOR MANAGEMENT FOR YOU.....................................................................................................23

NOTES FOR SMALL GROUP BREAKOUT EXERCISE..................................................................................23

NOTES FOR MANAGING ETHICALLY.......................................................................................................25

NOTES FOR WEB EXERCISES.................................................................................................................25

NOTES FOR YOU’RE THE MANAGEMENT CONSULTANT..........................................................................25

NOTES FOR MANAGEMENT CASE IN THE NEWS FROM THE PAGES OF NATIONAL POST............................25

NOTES FOR MANAGEMENT CASE IN THE NEWS FROM THE PAGES OF FORTUNE......................................26

OVERVIEW OF THE CHAPTER The purpose of this chapter is to examine how managers make decisions and to explore how

individual, group, and organizational factors affect the quality of the decisions they make and thus determine organizational performance. It discusses the nature of managerial decision making and examines some models of the decision-making process. The main steps of the decision-making process are outlined. The chapter explores the biases that may cause capable managers to make poor decisions both as individuals and as members of a group. It examines how managers can promote organizational learning and creativity and improve the quality of their decision making. The attributes of useful information needed for decision making are examined. Finally, it looks at how managers can promote organizational learning and creativity.

LEARNING OBJECTIVES

1. Differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process.

2. Describe the six steps that managers should take to make the best decisions.3. Explain how cognitive biases can affect decision making and lead managers to make poor

decisions.4. Identify the advantages and disadvantages of group decision making, and describe techniques

that can improve it.5. Explain the role that organizational learning and creativity play in helping managers to improve

their decisions.6. Differentiate between data and information, and list the characteristics of useful information.

KEY TERMS administrative model

ambiguous information

bounded rationality

brainstorming

creativity

data

decision making

Delphi technique

devil’s advocacy

escalating commitment

groupthink

heuristics

illusion of control

4.2 CONTEMPORARY MANAGEMENT: Instructors’ Resource Manual

information

information technology

intuition

judgment

learning organization

nominal group technique

nonprogrammed decision making

optimum decision

organizational learning

prior hypothesis bias

production blocking

programmed decision making

rational decision-making model

real-time information

representativeness bias

satisficing

systematic errors

uncertainty

Lecture Outline

A CASE IN CONTRAST. “A Tale Of Two Decisions At Calling Systems International” describes how two different management teams approached the same decision—whether to pursue a new product idea.I. THE NATURE OF MANAGERIAL DECISION MAKING.

A. Decision making is the process by which managers analyze the options facing them and make determinations about specific organizational goals and courses of action.

1. A good decision results in the selection of appropriate goals and courses of action that increase organizational performance.

2. Bad decisions result in lower performance.B. Programmed and Nonprogrammed Decision Making.

1. Programmed decision making is a routine, virtually automatic process.a. These decisions have been made so many times in the past that

managers have been able to develop rules or guidelines.

Chapter 4. The Manager as a Decision Maker 4.3

c. Most decision making that relates to day-to-day running of an organization is programmed decision making.

b. This is called programmed because the manager does not need to continually make judgments about what should be done.

2. Nonprogrammed decision making occurs in response to unusual or unpredictable situations.a. In these unexpected situations, managers lack the information

needed to develop rules.

b. Examples include investing in new technologies, developing new products, expanding internationally, etc.

c. Nonprogrammed decision making is the type of decision making that causes the most problems for managers.

3. The rational and administrative decision-making models are guides that can help managers understand the decision-making process.

C. The Rational Model.

1. The rational model (also called the classical model) is prescriptive, specifying how decisions should be made.

2. Managers using this model make a series of simplifying assumptions about the nature of the decision-making process.

3. The rational model assumes that managers have access to all the information they need to make the optimum decision.

4. The optimum decision is the most appropriate decision possible in light of what managers believe to be the most desirable future consequences.

This model also assumes that managers can list their preferences in order.

Figure 4.1: “The Rational Model of Decision Making” shows the assumptions of the model that correspond to the steps in decision making.

D. The Administrative Model.

1. James March and Herbert Simon proposed that managers in the real world do not have access to all the information they need, nor the mental capacity to process it all correctly.a. They developed the administrative model of decision making to

explain why decision making is always inherently risky and uncertain.

b. Thus, managers can rarely make decisions by the rational model.

c. The administrative model is based on the following three concepts.


2. Bounded Rationality.a. Human decision-making capabilities are bounded by people’s

cognitive limitations.

b. Bounded rationality describes the situation in which the number of alternatives and the amount of information are so great that it is difficult for the manager to evaluate it all before making a decision.

3. Incomplete Information.a. Information is incomplete because the full range of decision-

making alternatives is unknowable in most situations and consequences are uncertain.i. Under uncertainty, the probabilities of alternative outcomes

cannot be determined, and future outcomes are unknown.ii. Much of the information that managers have at their disposal

is ambiguous information, information that can be interpreted in multiple and often conflicting ways.

4. Satisficing.a. Faced with these limitations, managers do not attempt to discover

every alternative.

b. They use a strategy known as satisficing, exploring a limited sample of all potential alternatives.

c. They search for and choose acceptable or satisfactory ways to respond to problems rather than making the optimum decision.

5. March and Simon believe that managerial decision making is often more art than science and managers must rely on their intuition and judgment.a. Intuition is a person’s ability to make sound decisions based on

one’s past experience.

b. Judgement is a person’s ability to develop a sound opinion because of the way he or she evaluates the importance of the information available in a particular context.

c. Both intuition and judgement can be flawed and result in poor decision making.

II. STEPS IN THE DECISION-MAKING PROCESS.

A. Researchers have developed a six step model of the decision-making process that managers should consciously follow.

Figure 4.2: “Six Steps in Decision Making” shows the six steps for a decision about which job to take.

B. Recognize the Need for a Decision.


1. The first step is to recognize the need for a decision.2. Decisions arise both internally and as a consequence of external

environmental change.3. Once the need is recognized, one must diagnose the issue to determine

all underlying factors.C. Generate Alternatives.

1. A manager must generate a set of feasible alternative courses of action to take in response to the opportunity or threat.

2. Failure to properly generate and consider different alternatives is one reason why managers make bad decisions.

D. Assess Alternatives.

1. Once managers have generated a set of alternatives, they must evaluate the advantages and disadvantages of each one.a. The key is to define the opportunity or threat exactly and then

specify the criteria that should influence the selection of alternatives.

b. One reason for bad decisions is that managers often fail to specify the criteria that are important in reaching a decision.

2. Successful managers use four criteria to evaluate the pros and cons of alternative courses of action.

Figure 4.3: “General Criteria for Evaluating Possible Courses of Action” shows the questions to ask to assess alternatives.

a. Practicality: Managers must decide whether they have the capabilities and resources required to implement the alternative.

b. Economic feasibility: Manager must decide whether the alternatives can be accomplished, given the organization’s performance goals. Typically, a cost-benefit analysis is performed.

c. Ethicalness: Managers must ensure that a possible course of action is ethical and will not unnecessarily harm any stakeholder group.

d. Legality: Managers must ensure that a possible course of action is legal.

E. Choose Among Alternatives.

1. The next step is to rank the various alternatives using the criteria and make a decision.

2. Managers must be sure that all the information that is available is used.3. Identifying all relevant information for a decision does not mean that the

manager has complete information.


Lecture Enhancer 4.1: “A Bookstore Owner’s Decision”

F. Implement the Chosen Alternative.

1. Once a decision has been made, the alternative must be implemented.2. Thousands of subsequent decisions are necessary to implement it.3. Many managers make a decision and then fail to act on it.4. To ensure that a decision is implemented, top managers must:

a. Let middle managers participate in decisions, then give them the responsibility to make the follow-up decisions.

b. Give middle managers sufficient resources to achieve the goal.

c. Hold middle managers accountable for their performance.

d. If they succeed, then reward them.

G. Learn from Feedback.

1. Effective managers evaluate the results of their decisions to learn from experience and not repeat the same mistakes.

2. Managers must establish a procedure with which they can learn from the results of past decisions.a. Compare what actually happened to what was expected to happen

as a result of the decision.

b. Explore why any expectations for the decision were not met.

c. Develop guidelines that will help in future decision making.

3. Managers who always strive to learn from past mistakes and successes are likely to continuously improve the decisions they make.

Lecture Enhancer 4.2: “Big Blue Learns from Its Mistakes”

III. BIASES IN DECISION MAKING.

A. Because all decision makers are subject to bounded rationality, they tend to use heuristics, rules of thumb that simplify the process of making decisions.

1. Rules of thumb help decision makers make sense of complex, uncertain, and ambiguous information.

2. Sometimes the use of heuristics can lead to systematic errors in the way decision makers process information.

3. Systematic errors are errors that people make over and over and that result in poor decision making.


4. Four sources of bias can adversely affect the way managers make decisions.

Figure 4.4: “Sources of Cognitive Bias at the Individual and Group Levels”

B. Prior Hypothesis Bias.

1. Decision makers who have strong prior beliefs about the relationship between two variables tend to make decisions based on those beliefs.

2. Prior hypothesis bias is a cognitive bias resulting from the tendency to base decision on strong prior beliefs even when those beliefs are wrong.

3. Decision makers tend to seek and use information that is consistent with their prior beliefs and to ignore information that contradicts those beliefs.

C. Representative Bias.

1. Representative bias is a cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode.

D. Illusion of Control.

1. The illusion of control is the tendency of decision makers to overestimate their ability to control activities and events.

2. Top-level managers tend to be overconfident about their ability to succeed and to control events.

E. Escalating Commitment.

1. Some managers commit more resources to the project even if they receive feedback that the project is failing.

2. Feelings of personal responsibility for a project bias the analysis of decision makers and lead to escalating commitment.

F. Be Aware of Your Biases.

1. Managers must be aware of biases and identify their own personal style of making decisions.

2. Managers can analyze their decision-making style by reviewing two decisions they have made—one that turned out well and one that turned our poorly.

3. Another technique is for managers to list the criteria they typically use to assess alternatives and then critically evaluate the appropriateness of these factors.

4. Individual managers are likely to have difficulty identifying their own biases.

IV. GROUP DECISION MAKING.


A. Many important decisions are made by groups of managers rather than individuals.

1. Advantages:a. When managers work as a team, their choices of alternatives are

less likely to suffer from biases.

b. They are able to draw on the group’s combined skills and accumulated knowledge.

c. Group decision making allows managers to process more information and correct each others’ errors.

d. A group decision is more likely to be implemented successfully.

2. Disadvantages:a. Groups often take much longer than individuals to make decisions.

b. Getting two or more managers to agree can be difficult because managers’ preferences differ.

c. Group decision making can be undermined by biases.

B. The Perils of Groupthink.

1. Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information.

2. A group rallies around one central manager and become blindly committed to that course without evaluating its merits.

3. The symptoms of groupthink include:a. Illusion of invulnerability: Group members become overconfident

among themselves, allowing them to take extraordinary risks.

b. Assumption of morality: Group members believe highly in the moral rightness of the group’s objectives and do not feel the need to debate the ethics of their actions.

c. Rationalized resistance. Group members rationalize any resistance to the assumptions they have made. No matter how strongly the evidence may contradict their basic assumptions, members behave so as to reinforce those assumptions continually.

d. Peer pressure. Members apply direct pressures on those who momentarily express doubts about any of the group’s shared views or who question the validity of arguments supporting the alternative favoured by the majority.

e. Minimized doubts. Those members who have doubts or hold differing points of view seek to avoid deviating from what appears


to be group consensus by keeping silent about misgivings and even minimizing to themselves the importance of their doubts.

f. Illusion of unanimity. If someone doesn’t speak, it’s assumed that he or she is in full accord. In other words, abstention becomes viewed as a “Yes” vote.

C. Improved Decision Making.

1. Managers should encourage group leaders to be impartial and avoid expressing their own opinion until input is actively sought from all group members.

2. Devil’s advocacy is a critical analysis of a preferred alternative to ascertain its strengths and weaknesses before it is implemented.

Figure 4.5: “Devil’s Advocacy” lists the 3 steps involved in this process.

a. One member of the group plays the role of devil’s advocate.

b. The devil’s advocate critiques and challenges the way the group evaluates and chooses alternatives.

3. Promoting diversity in decision making groups also improves group decision making by broadening the range of opinions that the group members can draw from.a. Diverse groups are less prone to groupthink.

Lecture Enhancer 4.3: “World-class Bad Decisions”

V. ORGANIZATIONAL LEARNING AND CREATIVITY.

A. Managers can increase their ability to make nonprogrammed decisions, those that allow them to adapt to, modify, and alter their task environments.

1. Organizational learning is the process through which managers seek to improve employees’ desire and ability to understand and manage the organization.

2. A learning organization is one in which managers do everything possible to maximize the potential for organizational learning to take place.

3. Creativity is the ability of a decision maker to discover original and novel ideas that lead to feasible alternative courses of action.

B. Promoting Individual Creativity.

1. People must be given the opportunity and freedom to generate new ideas.

2. Creativity results when managers have an opportunity to experiment, to take risks, and to make mistakes and learn from them.


3. Creativity can be fostered by providing them with constructive feedback so that they know how well they are doing.

4. It is also important for top managers to stress the importance of looking for alternatives solutions and to visibly reward employees who come up with creative ideas.

C. Promoting Group Creativity.

1. To encourage creativity organizations can make use of the group problem-solving techniques.

2. Brainstorming is a group problem-solving technique in which individuals meet face-to-face to generate and debate a wide variety of alternatives form which to make a decision:a. Procedure:

i. One person describes the problem in broad outline.ii. Group members share their ideas and generate courses of

action.iii. Group members are not allowed to criticize each alternative

until all have been heard.iv. Group members are encouraged to be innovative and “piggy

back” ideas.v. When all alternatives have been generated, the group members

debate the pros and cons and develop a list of the best alternatives.

b. Sometimes individuals working alone can generate more alternatives.

c. Production blocking, a loss of productivity due to the unstructured nature of brainstorming, occurs because group members cannot always process the volume of information at once.

3. Nominal group technique is a decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives.a. This provides a more structured way of generating alternatives in

writing.

b. The nominal group technique is especially useful when an issue is controversial.

c. Procedure:i. One person outlines the problem to be addressed and group

members write down ideas and solutions.


ii. Individuals read their suggestions to the group with no criticism allowed.

iii. The alternatives are discussed, and group members can critique or ask for clarification.

iv. Each member ranks all the alternatives, and the highest ranking one is chosen.

4. Delphi Technique.a. Both nominal group technique and brainstorming require managers

to meet together to generate ideas.

b. If managers cannot meet face-to-face, video conferencing can bring managers together.

c. The Delphi technique is a decision-making technique in which group members do not meet face to face but respond in writing to questions posed by the group leader.

d. Procedure:i. The group leader writes a statement of the problem and a

series of questions.ii. The questionnaire is sent to managers who generate solutions

and mail the questionnaire back to the group leader.iii. A team records and summarizes the responses, which are sent

back to the participants with additional questions.iv. The process is repeated until a consensus is reached.

VI. INFORMATION AND THE MANAGER'S JOB.A. Key Concepts.

1. In order to make decisions, managers need access to internal and external data and information.

2. Information is not the same as data.a. Data is raw, unsummarized, and unanalyzed facts such as volume

of sales.

b. Information is data that is organized in a meaningful fashion, such as a graph showing changes in sales over time.

c. One of the uses of information technology is to help managers transform data into information in order to make better decisions.

d. Information technology is the means by which information is acquired, organized, stored, manipulated, and transmitted.


i. Rapid advances in the power of information technology have a large impact on information systems and on managers.

B. Attributes of Useful Information.

Figure 4.6: “Factors Affecting the Usefulness of Information”

1. Quality.a. Accuracy and reliability determine the quality of information.

b. The greater accuracy and reliability are, the higher is the quality of information.

c. For an information system to work well, the information it provides must be of high quality.

2. Timeliness.a. Information that is timely is available when it is needed, not after

the decision has been made.

b. In today’s rapidly changing world, that means information must be available on a real-time basis.

c. Real-time information is information that reflects current conditions.

3. Completeness.a. Information that is complete gives managers all the information

they need to exercise control, achieve coordination, or make an effective decision.

b. One of the functions of information systems is to increase the completeness of the information that managers have.

4. Relevance.a. Information that is relevant is useful and suits a manager’s

particular needs and circumstances.

b. Irrelevant information is useless and may actually hurt the performance of a busy manager.

c. The people who design information systems need to make sure that managers receive only relevant information.

V. SUMMARY AND REVIEW.

LEARNING OBJECTIVES REVISITED Learning Objective 1. Differentiate between programmed and nonprogrammed decisions, and

explain why nonprogrammed decision making is a complex, uncertain process.• Programmed decision making is a routine, virtually automatic process.


› These decisions have been made so many times in the past that managers have been able to develop rules of guidelines.

› Most decision making that relates to day-to-day running of an organization is programmed decision making.

• Nonprogrammed decision making is required for these nonroutine, ambiguous decisions.› Nonprogrammed decisions are decisions that are made in response to unusual or novel

opportunities or threats.› When managers make decisions in the absence of decision rules, they must search for

information about alternative courses of action and rely on intuition and judgment.• Nonprogrammed decision making is the type of decision making that causes the most problems

for managers.

Learning Objective 2. Describe the six steps that managers should take to make the best decisions.• Recognize the need for a decision.

• Generate a set of feasible alternative courses of action to take in response to the opportunity or threat.

• Evaluate the advantages and disadvantages of each alternative.

• Choose among alternative and make a decision.

• Learning from feedback, by establishing a procedure with which to learn from the results of past decisions.

Learning Objective 3. Explain how cognitive biases can affect decision making and lead managers to make poor decisions.

• Rules of thumb help decision makers make sense of complex, uncertain, and ambiguous information but can lead to systematic errors in the way decision makers process information.

• Four sources of bias can adversely affect the way managers make decisions.› Prior hypothetical bias is a bias resulting from the tendency to base decision on strong prior

beliefs even when those beliefs are wrong.› Representative bias is a cognitive bias resulting from the tendency to generalize

inappropriately from a small sample or from a single vivid event or episode.› The illusion of control is the tendency of decision makers to overestimate their ability to

control activities and events.› Feelings of personal responsibility for a project bias the analysis of decision makers and

lead to escalating commitment.• Managers must be aware of biases and identify their own personal style of making decisions.

Learning Objective 4. Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it.

• Advantages of group decision making:› When managers work as a team, their choices of alternatives are less likely to suffer from

biases.› They are able to draw on the group’s combined skills and knowledge.› Group decision making allows managers to process more information and correct each

others’ errors.


› Decisions made by those that will be affected by them are more likely to be implemented successfully.

• Disadvantages of group decision making:› Groups often take much longer than individuals to make decisions.› Getting two or more managers to agree can be difficult because managers’ preferences

differ.› Group decision making can be undermined by biases.› Group decisions are subject to groupthink, a pattern of faulty and biased decision making.

• Several techniques can be used to help managers make decisions that are realistic and based on a thorough evaluation of alternatives.› Devil’s advocacy is a critical analysis of a preferred alternative to ascertain its strengths and

weaknesses before it is implemented.› Managers can encourage input from all and remain impartial.› Promoting diversity in decision making groups also improves group decision making.

Learning Objective 5. Explain the role that organizational learning and creativity play in helping managers to improve their decisions.

• Organizational learning is the process through which managers seek to improve employees’ desire and ability to understand and manage the organization.

• A learning organization is one in which managers do everything possible to maximize the potential for organizational learning to take place.

• Creativity is the ability of a decision maker to discover original and novel ideas that lead to feasible alternative courses of action.

• Building a learning organization requires managers to change their management assumptions radically.

Learning Objective 6. Differentiate between data and information, and list the characteristics of useful information.

• Information is not the same as data.› Data is raw, unsummarized, and unanalyzed facts such as volume of sales.› Information is data that is organized in a meaningful fashion, such as a graph showing

changes in sales over time.• Attributes of useful information:

› Accuracy and reliability determine the quality of information.› Information that is timely is available when it is needed, not after the decision has been

made.› Information that is complete gives managers all the information they need to exercise

control, achieve coordination, or make an effective decision.› Information that is relevant is useful and suits a manager’s particular needs and

circumstances.


LECTURE ENHANCERS

Lecture Enhancer 4.1A BOOKSTORE OWNER’S DECISION

The Children’s Bookstore closed its books in 1996 after nearly a dozen years of operation. In 1985 owner Andy Laties and his wife combined his children’s theater experience with her business background to create a retail store whose ambitious program of events would turn it into a community resource. At its peak the Chicago store held about 250 events a year, including readings, dance recitals, author visits, and art workshops.

One key to the store’s demise, Laties says, was the decision six years before not to expand but to remain focused on the nearby community. “If we had tried to grow very sharply in the Chicago market by bringing in venture capital and doing an aggressive expansion, we’d still be in business,” he says. “We could have gone to 10,000-square-foot locations in the late 1980s, but we made the conscious decision not to. I was still doing two story hours a week and enjoying it. I didn’t want to become an executive.”

In 1995 walk-in sales dropped to $250,000, half the store’s peak of $500,000 in 1991. Five superstores opened within a one-mile radius of the Bookstore’s Lincoln Avenue location in that year, nearly quadrupling the amount of retail space for children’s books, from 4,000 to 15,000 square feet, while population growth in the region was flat.

During the prior five years, independent bookstores steadily lost market share to superstores and chains, declining from 32 percent in 1991 to less than 20 percent in 1995. “Children’s is a perfect example of a very fine bookseller that serviced the community with great integrity, but the simple economics of competing with giant corporate entities made it impossible to continue,” says the former president of the American Booksellers Association, Avin Domnitz.

In spring 1996 Children’s Bookstore held two closeout sales and then returned its leftover inventory to the publishers. Laties says the Children’s Bookstore supported his family for seven years, but the business model it followed was no longer viable. “I’d have loved to continue running a Children’s Bookstore with 25,000 titles, an expert staff, lots of special events, and free story hours. But I don’t think there’s any place in Chicago that can support that type of store anymore.” Nevertheless, Laties still owns the Children’s Bookstore name and says he is waiting for the chance to get back in the game. “I’m waiting for some of the superstores to go out of business, and then I plan to reopen with a whole new model.”

Lecture Enhancer 4.2BIG BLUE LEARNS FROM ITS MISTAKES

As the centennial year of the Olympic Games and Information Age wizardry converged in Atlanta, the ‘96 Summer Games were supposed to highlight technological as well as athletic feats. IBM devised the Game’s information system as the centerpiece of an $80 million commitment of computers and personnel. It was intended to be the company’s most visible showcase, demonstrating to potential corporate and government customers of the world just what Big Blue can do.

But almost immediately, the most sophisticated and ballyhooed computer system ever devised for the Olympics faced intense criticism about its ability to deliver. Results of the Sunday morning men’s rowing competition, for instance, were not to be found on the computer system late Monday afternoon. “No information available at this time,” the “Info ‘96" screen read.

In the wake of Atlanta, IBM looked back on its Olympic project and evaluated what went wrong. The massive computer system built for Atlanta has been disassembled until the 1998 games in Japan, but the lessons learned by IBM prove to be worthwhile for all business owners.

• The leading edge is the bleeding edge. The Atlanta Committee for the Olympic Games demanded that technical specifications for the entire 1996 information system be frozen almost two years ahead of time—a full generation in computer years. Reliability and proven performance were


deemed more important than speed. The committee made some exceptions, however. One was for the system that delivered sports scores to the world’s major news agencies. The final specs weren’t locked down until a few weeks before the Games began. There wasn’t time to test the system properly, and it failed spectacularly.

• Have a backup strategy. Not just for your computer but for your whole office. In Atlanta redundant systems were set up to act as safety nets for equipment failure. However, IBM didn’t have a backup system in place for the results distribution system that failed. There was a mad scramble to find volunteers to deliver printed results by hand and to type scores to be sent by fax machines.

• Pay particular attention to public systems. Most of the Olympic computer systems were used to handle the administrative flow of data, and they worked well. Naturally, the ones that malfunctioned were the public systems. As a result, millions of people experienced first-hand the problems with the Olympic WWW site, the newspaper results system, and the local information kiosks in Atlanta.

• Don’t trust computers. Proofread. The computer said an Angolan basketball player was three feet tall and insisted that a gymnast was 97 years old. IBM’s solution was to have someone actually read the facts and figures before sending them out.

• Don’t promise more than you can deliver. IBM filled the airwaves with clever commercials taking credit for the computer system, even after it started malfunctioning. Once the glitches appeared, there was no way to duck the responsibility. And by the middle of the Games, IBM felt compelled to pull some of its print ads that were to have appeared in USA Today and The Wall Street Journal.

• Be open and honest, and solve the problem. When the mistakes became known, IBM was swift to acknowledge them. It apologized to its customers and promised to do everything possible to fix the flaws, even when they weren’t the company’s fault. The company even flew in extra workers and set up bunks in the control center. As a result, people affected by the computer glitches were more likely to come away from the Games remembering the technology that worked well rather than the few systems that were screwed up.

Lecture Enhancer 4.3WORLD-CLASS BAD DECISIONS

In the Decision Making Hall of Fame, one room should be reserved for truly bad decisions. One of the classics, already mentioned in an earlier chapter, was Hewlett-Packard’s decision not to develop a product created by an employee: Steve Wozniak went off with his device to co-found Apple Computer.

Some rejected ideas have involved whole industries. When Alexander Graham Bell invented the telephone in 1876, he had a hard time attracting backers. President Rutherford B. Hayes used a prototype telephone and remarked “That’s an amazing invention, but who would ever want to use one of them?” Bell approached Western Union Telegraph Company and offered to sell them the patents. Their decision: they had no use for an electrical toy.

A young inventor, Chester Carlson, took his idea to twenty corporations, all of whom turned him down. He finally got a small New York company named Haloid Co. to purchase the rights to his electrostatic paper-copying process. Haloid became Xerox Corporation, and Carlson’s process made both Xerox and Carlson very rich.

In 1962 four musicians played for executives of Decca Recording Company. One executive later explained that they just didn’t like the group’s sound, noting that guitar groups were on their way out. Four other record companies turned them down. The Decision Making Hall of Fame will have a special place for Decca, which turned down the Beatles.


NOTES FOR TOPICS FOR DISCUSSION AND ACTION

1. What are the main differences between programmed decision making and nonprogrammed decision making?

Programmed decision making is a routine, almost automatic process. These decisions have been made so many times that managers do not need to readdress all the alternatives every time one of these decisions arises, but can use decision-making rules or guidelines that have been developed for these situations. Managers typically have all the information they need to create the rules necessary to make a decision. There is little ambiguity involved in these types of decisions.

Nonprogrammed decision making is required when a situation arises that is not easily resolved by a pre-existing rule or guideline. These decisions are non-routine, and require managers to respond to uncertain events, since managers in these situations lack the information that they need to develop rules that allow them to accurately predict the future.

2. In what ways do the rational and administrative models of decision making help managers appreciate the complexities involved in real world decision making?

There are two decision making models: the rational model and the administrative model. These models help reveal the complexities and the different factors that managers must consider to improve the quality of their decision making.

The rational model’s main premise is that once managers recognize the need to make a decision, they should be able to generate a complete list of all alternatives and consequences from which the best choice can then be made. This premise assumes that managers will have access to all the information that they need in order to make the optimum decision. This model helps managers appreciate the complexities by requiring them to consider all the information and, and try to make decisions that will have the most desirable consequences for their organization.

The administrative model proposes that managers do not have access to all the information they need to make a decision. This model reveals even more fully the complexities involved in decision making in the real world. Proponents of this model assert that even if managers had access to all the relevant information they need, they would lack the mental or psychological ability to absorb and correctly evaluate it. Managers are not expected to have access to all the information, or have knowledge of all the consequences of their decisions. This model is more realistic for managers because it concedes that factors such as uncertainty and ambiguity are operating in ways that make nonprogrammed decision making difficult, even for the most experienced managers.

3. Ask a manager to recall the best and the worst decision he or she has ever made. Try to determine why these decisions were so good or so bad.

Leslie Fox is the manager at a commercial bank. She described her worst managerial decision as the one to establish a teller of the month program at her branch. This well-intentioned effort to motivate her employees led to competition and resentment when only one employee was recognized each month. There was no recognition given if someone improved their performance, only recognition for the best performer in the branch. Also, no teller could be named “teller of the month” more than once, and tellers began to see the program as a turn-taking operation that did not necessarily reward the consistently superior employees.

Leslie’s best management decision was to establish a “Teller’s Wall of Fame.” Any teller who met the standards that were set for service and quality of work was eligible for the Wall. This allowed more than one person to be recognized, as soon as they were eligible, rather than only once a month. Members of the Wall of Fame were recognized in the company newsletter, and were given special incentives, such


as time off with pay, or monetary compensation. This program made it possible to reward improvement and cooperation among tellers.

Leslie believes that the two decisions had different outcomes because the decision to implement the first program was more of a programmed decision than a nonprogrammed decision. She had gotten the idea from seeing its application in other organizations, and she did not consider the alternatives to this kind of program, or the possible consequences of it. She believes that she should have asked managers at other branches for suggestions for a recognition program before she decided on one. She also should have evaluated the program’s success in other organizations before implementing it in her own. Also, if she would have received immediate feedback, or feedback on the idea before implementation, her tellers might have suggested better ways of recognizing employees.

4. Why do capable managers sometimes make bad decisions? What can individual managers do to improve their decision making skills?

Capable managers sometimes make bad decisions because the decision making process can often be risky and uncertain. Systematic errors, or errors that appear over and over again, which most people are prone to making, and which result in poor quality decision making, sometimes prevent managers from making good decisions. Managers may have strong prior beliefs about the relationship between two variables, and might ignore evidence that contradicts these beliefs, while failing to establish validity of the belief, known as the prior hypothesis bias. Managers may also inappropriately generalize from a single incident or from a small sample, to all seemingly similar incidents or samples. This bias of representativeness does not allow a manager to realize the uniqueness of a situation, and the need for an innovative solution. Illusion of control refers to the tendency for managers to overestimate their ability to control activities and events. This illusion may cause managers to overestimate the odds of a favourable outcome, and consequently, to make inappropriate decisions. Finally, escalating commitment refers to the mistake that managers make when they refuse to abandon a failing course of action. A manager may be unable to divorce his or her personal responsibility from the decision, and therefore, is not able to let go and “cut the losses and run.”

These cognitive biases are common in managers, but they can be avoided if managers are aware of them and their effects. Managers need to identify their own personal style of decision making in order to recognize inconsistencies and errors in reasoning that may prevent them from making optimum decisions. By reviewing two recent decisions—one that turned out well and one that turned out poorly—and seeing how they were made, a manager can gain insight into his or her decision making process. Another technique that is useful is to list the criteria that is used to assess and evaluate alternatives. This can help managers critically evaluate the effectiveness and the appropriateness of each technique and strategy in their decision making process. Working with others may be helpful as well, as it is often difficult to recognize our own biases and weaknesses.

5. In what kinds of groups is groupthink most likely to be a problem? When is it least likely to be a problem? What steps can group members take to ward off groupthink?

Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision. When this occurs, alternatives are not critically examined, potentially leading to a poor decision. Emotion, rather than objective assessment, guides the selection of the optimal course of action. This is most likely to be a problem in groups where pressure toward agreement is seen as more important than finding a workable solution or reaching an optimum decision. If the culture of the organization is not tolerant of criticism or innovative thinking, groupthink is more likely to occur during group decision making attempts. If one person in a group is allowed to be highly vocal and controlling during the decision making process, others may feel too intimidated to present their suggestions or opinions.


Groupthink is least likely to be a problem when all the members of the group feel comfortable making suggestions and offering radical alternatives. If the culture supports risk-taking and innovative thinking, group members will not feel pressure to conform to the feeling of the majority. Also, if the contribution of the group is emphasized, rather than individual achievement, managers will see the opportunity to build upon the suggestions of others.

One technique that can be used to make groupthink less likely to occur is to assign a devil’s advocate. A devil’s advocate critically analyses a preferred alternative to ascertain its strengths and weaknesses before it is implemented and the process by which decisions are made. Also, managers can encourage input from all and remain impartial. Finally, promoting diversity in decision making groups also improves group decision making.

6. What is organizational learning and how can managers promote it?

Organizational learning is the process through which managers seek to improve organization members desire and ability to understand and manage the organization and its environment so that they can make decisions that continuously raise organizational effectiveness. A learning organization is one that promotes creativity, or the ability of a decision maker to discover original and novel ideas that lead to feasible alternative courses of action. Creativity is at the heart of organizational learning. People must be given the opportunity and freedom to generate new ideas. Creativity results when individuals have an opportunity to experiment, to take risks, to make mistakes and learn from them, to receive feedback on how well they are doing, and to be rewarded when they come up with a creative idea. To encourage creativity organizations can make use of the group problem-solving techniques such as brainstorming, nominal group technique and the Delphi technique.

7. To be useful, information must be of high quality, timely, relevant, and as complete as possible. Describe the negative impact that a tall management hierarchy, when used as an information system, can have on these desirable attributes.

In organizations with many layers, it can take a lot of time for information to travel up the hierarchy and for decisions to travel back down. This reduction in the timeliness and usefulness of information will prevent an organization from responding quickly and make the decisions and changes necessary.

Another problem with a tall hierarchy is that information can get distorted in the transmission process through management layers. This distortion reduces the quality of the information.

Additionally, because managers only have a limited span of control, as an organization grows larger, its hierarchy lengthens and this can make this type of information system very expensive.

8. Ask a manager to describe the main kinds of information systems that he or she uses on a routine basis at work.

An information system can be either a transaction processing system, an operations information system, a decision support system, or an expert system. A transaction-processing system is designed to handle large volumes of routine, recurring transactions. An operations information system gathers comprehensive data, organizes it, and summarizes it so that it has value for managers. They help managers to make nonprogrammed decisions. A decision support system is an interactive computer-based system that provides models that help managers make better nonprogrammed decisions. Model-building capabilities provide managers with the ability to manipulate information in a variety of ways. An expert system employs human knowledge captured in a computer to solve problems that ordinarily require human expertise. Expert systems are a variant of artificial intelligence and are the most advanced management information systems available. Mimicking human expertise requires a computer that can 1) recognize, formulate, and solve a problem, 2) explain the solution, and 3) learn from experience.


NOTES FOR BUILDING MANAGEMENT SKILLS

Pick a decision that you have made recently that has had important consequences for you. This decision may be your decision concerning which college to attend, which major to select, which part time job to take, or even whether or not to take a part time job. Using the material in this chapter, analyze the way in which you made the decision:

1. Identify the criteria you used, either consciously or unconsciously, to guide your decision making.

John needed to decide if he should take a part-time job as a research assistant in the management department his second year in college. John decided that he would take the position because he thought it would be good experience and would allow him to earn some extra spending money. He was excited about the prospect of working with faculty that he liked and respected. When John was offered the position at the end of his first year, he allowed himself the summer to think it over and decide. John decided that it would not be unethical for him, a management and accounting major, to take the job since the job did not require him to photocopy tests or handle any sensitive student information. John also decided that the position was economically feasible since he would be making his own money and would not need to rely on his parents for support. John also decided that it would be practical, since the job was only ten hours a week; it would not interfere with his studies and his goal of attaining a 3.5 grade point average.2. List the alternatives that you considered. Were these all the possible alternatives? Did you

unconsciously (or consciously) ignore some important alternatives?

John listed alternatives before he made his decision. He thought that he could: take the job in the management department

take a different part-time job somewhere else, either within the university or the community

not accept the position nor seek other employment, in order to concentrate on his classesJohn did not consider any other alternatives. It seemed to him that these were all the alternatives that

were possible. One alternative that John did not consider was the option of taking out a student loan to cover

expenses. John did not think he would be eligible for such a loan, and it did not occur to him to go to the financial aid office and see if it was possible for him to get a loan.

3. How much information did you have about each alternative? Did you base the decision on complete or incomplete information?

John had some information about the job in the management department, such as the hours he would be required to work, his duties, and his pay rate. He did not know if he would like the job, or if he would prefer to do something else with his time.

John did not know if he would be able to get another job at the university, or if there were any jobs in the community that would be practical for him to take.

John also did not know the amount of work he would need to do for his classes. He did not know for sure how much studying and time he would need to devote to his classes in order to achieve his goals.

John also did not have enough information about his financial status and was not aware of the resources available through loans and scholarships.

John was making his decision on the basis of incomplete information.


4. Try to remember how you reached a decision. Did you sit down and consciously think through the implications of each alternative, or did you make a decision on the basis of intuition? Did you use any rules of thumb to help you make the decision?

John sat down and consciously thought through the implications of each alternative. He realized that working would interfere with doing other things, like socializing with friends or playing on a sports team. He also realized that it would be a good experience and would look impressive on his resume. John thought it might also allow him to make contacts that might help him to find a job when he graduated. Also, the skills of time management and organization that John would develop would be beneficial to everything else in his life. John’s intuition also told him that he would be able to juggle the demands of his studies and with those of his job because he had held a part-time job in high school and had managed to do well in school.

5. In retrospect, do you think that your choice of decision alternative was shaped by any of the cognitive biases discussed in this chapter?

John may have been affected by the illusion of control cognitive bias. He may have had an exaggerated sense of what he could do, and may have been overconfident in his ability to succeed and control events. His teachers were the ones who would decide how well he mastered his course work. His friends would exert a certain amount of peer pressure on him to be more social, and to not work so much. The faculty in the management department would be the ones to decide if he remained in his position, and funding for the university would also determine this.

6. Having answered those five questions, do you think in retrospect that you made a reasonable decision? What, if anything, might you do to improve your ability to make good decisions in the future?

John made many contacts and gained valuable experience during his employment in the management department. Through his job there, he was able to obtain an internship position for the summers that further advanced his education and opportunities. John found that the real world was not as easily arranged as his textbooks had led him to believe. He learned how to get along with people and apply his academic knowledge to real situations.

John made a reasonable decision based on the outcomes but also on the process he used. He consciously weighed the alternatives and obtained information before deciding.

John might have improved his decision making process by obtaining feedback from other students who were working during the school year to see how they handled all their responsibilities. He might have also talked to faculty or managers in the community about the value of taking the position. Additionally, John could have spoken with his parents and the financial aid office to determine if he was eligible for assistance.

NOTES FOR MANAGEMENT FOR YOU

Responses to this exercise will vary.

NOTES FOR SMALL GROUP BREAKOUT EXERCISE

BrainstormingForm groups of three or four people and appoint one member as the spokesperson who will communicate your findings to the whole class when called upon by the instructor. Then discuss the following scenario:


You and your partners are trying to decide which kind of restaurant to open in a centrally-located shopping center that has just been built in your city. The problem confronting you is that the city already has many restaurants that provide different kinds of food in all price ranges. You have the resources to open any type of restaurant, your problem is to decide which type is most likely to succeed.

Use the brainstorming technique to decide which type of restaurant to open. Follow these steps:1. As a group, spend 5 or 10 minutes generating ideas about the alternative kinds of restaurants that

you think will be most likely to succeed. Each group member should be as innovative and creative as possible, and no suggestions should be criticized.

The following is a list of some alternative kinds of restaurants that students may suggest: a sports bar and grille

a restaurant specializing in a certain type of ethnic food: Chinese, Indian, Italian, Korean, Middle Eastern, or other ethnic theme

a celebrity restaurant with memorabilia and entertainment

a Western saloon restaurant

a cartoon character theme restaurant

a 50's diner theme restaurant2. Appoint one group member to write down the alternatives as they are identified.

3. Spend the next 10 to 15 minutes debating the pros and cons of the alternatives. As a group try to reach a consensus on which alternative is most likely to succeed.

While engaging in this exercise, students should consider the location of the restaurant, the neighborhood that surrounds it, the availability of people to staff the operation, and other practical issues, such as competition from other restaurants in the area. An attempt should be made to collect all available information on these issues, though incomplete information is likely going to be a factor. Techniques such as devil’s advocacy should be used to objectively evaluate all the alternatives and avoid problems of groupthink. Debate should be conducted in a way that facilitates constructive criticism and innovation. Group members should feel comfortable voicing their concerns and suggestions to the group.

4. After making your decision, discuss the pros and cons of the brainstorming method and decide whether any production blocking problems occurred in your group.

Pros of brainstorming include: creative and innovative suggestions from more than one person who is contemplating the same problem; improved evaluation of suggestions from other group members; opportunities to “piggyback”, or build on, others suggestions.

Cons of brainstorming include: sometimes one individual alone can generate more alternatives; production blocking can occur in the group, a condition that results when group members cannot absorb all the information about alternatives being generated. When this occurs, group members are so busy trying to listen to all the alternatives, they frequently forget their own.

When called upon by the instructor, the spokesperson should be prepared to share your group’s decision with the class, as well as the reasons you made your decision.


NOTES FOR MANAGING ETHICALLY

Responses to this set of questions will differ, based upon the varying experiences of students.

Ethics will vary based on individual and cultural characteristics as well as in different situations. Sometimes the goals and targets are very difficult to reach, and managers feel pressured to resort to unethical behaviour to meet them. Dishonesty is unacceptable regardless of the circumstance. Employees should be careful to avoid conflicts of interest that may cause others to question their integrity. Although those involved in such unethical situations may perhaps benefit in the short run, in the long run they harm not only their customers and their companies, but also themselves.

Training in ethics raises awareness of issues and helps others to look at different aspects of an issue. Establishing an organizational code of ethics and making all employees aware of it can encourage ethical behaviour. It is also important that managers always engage in ethical conduct, so that they can lead by example

NOTES FOR WEB EXERCISES

As web site information changes, it is best that each instructor check for the most current information when they assign these exercises.

NOTES FOR YOU’RE THE MANAGEMENT CONSULTANT

The CEO and the COO do not seem to be risk takers and appear afraid to venture beyond the status quo. Silverstein will have to convince them that his plans do not involve excessive levels of risk because they have been thoroughly researched. To do so, Silverstein should request a formal meeting with the CEO and COO at which the sole topic of discussion is his three proposals. At the meeting, Silverstein must emphasize the practicality and economic feasibility of each. Also, he should consider engaging in "devil’s advocacy" with the CEO and COO, which would give them the opportunity to thoroughly critique each proposal and address areas of uncertainty. NOTES FOR MANAGEMENT CASE IN THE NEWS FROM THE PAGES OF NATIONAL POST

CP Wants to Be Leaner, Meaner

CASE SYNOPSISCanadian Pacific Ltd. is looking to divest at least one of its five core businesses this year, says

David O’Brien, the company’s chairman, president and chief executive. The company is determined to reduce the range of its businesses, although the CEO was not clear on how this would be done.

1. Evaluate O’Brien’s actions in terns of the six-step decision-making process described in this chapter. (See Figure 6.4.)O’Brien needed to make a decision to respond to the threat that CP’s organizational performance is

affected by having all five of its companies valued together. Operating with incomplete information, O’Brien attempted to make the optimum decision to ensure profitability for the company. In 2001, O’Brien recognized the need for a decision and was the impetus for the company’s preparation to sell off some of its businesses. O’Brien must have considered alternatives, such as restructuring, or looking for further economies of scale. After evaluating alternatives, O’Brien decided that some of CP’s holdings should be divested. O’Brien’s goal is to increase shareholder value through the creation of separate


companies. He decided to divest some of the companies to increase the value of the individual companies. O’Brien implemented his strategy so that CP could focus on growth strategies moving into the future.

2. Do you think O’Brien might be suffering from any of the cognitive biases described in the chapter? Which ones?

O’Brien may be suffering from some of the cognitive biases described in the chapter, most notably representativeness and illusion of control. Other companies have sometimes benefited by selling off some of the component parts, so O’Brien assumes that CP will be equally successful. In other words, he is generalizing from the success of other companies who have managed successful divestitures.

The illusion of control may also be operating in O’Brien’s decision. He may believe that selling now will increase the value of the individual companies, even though the economy is facing some difficulty. Moreover, O’Brien is opposed to speculation about which companies will be put up for sale until he is ready to make that announcement. However, he cannot control speculation. The environment is very uncertain, and O’Brien may not be capable of predicting whether the decisions made are the optimum ones.

3. Do you think that O’Brien has charted the right course for Canadian Pacific? What new opportunities and threats might be on the horizon?

O’Brien is very aggressive in his strategy for leading CP into the future. While it is true that selling off some of the companies may prove to be a difficult task, it appears that O’Brien is on the right track with his proposed course of action. The decision making process at CP is not taken lightly, and carrying out the selloff will only occur if CP is somewhat confident of future success. In recent times, CP has a bias toward energy and hotels, and O’Brien has said that energy and hotels offer the best growth opportunities for the company.

A possible threat to CP’s success may be the loss of companies that have helped define CP’s reputation. By diversifying into a variety of businesses, CP has been able in the past to expand its horizons. Diversifying also gives the company to offset losses in some areas when the economy is faltering. While hotels may appear to be a growth opportunity, events after September 11, 2001, suggest that travel could go into a downturn, at least for the near future.

NOTES FOR MANAGEMENT CASE IN THE NEWS FROM THE PAGES OF FORTUNE

How Disney Keeps Ideas Coming

CASE SYNOPSISThe Walt Disney Company is one of the most creative and innovative companies in the world. This

case gives insight into the management strategy at Disney, and how Disney is able to facilitate new ideas while maintaining a healthy bottom-line. Management uses unique tactics that allow anyone in the organization to present ideas to the top managers, and an atmosphere of respect is cultivated through this process. The culture of the organization is described by one of its top managers, and it is one of innovation and respect for people and ideas. The organization’s structure is not so rigidly established that ideas and criticism is unable to flow in every direction. Disney’s collective approach is emphasized as an effective way to make decisions and to allow everyone responsibility and credit for success.

1. How does the Walt Disney Company try to encourage its employees to be creative and innovative?Disney uses many creative strategies to encourage creativity and innovation in its employees. A

Gong Show presentation format allows any person in the company to present an idea to the top managers,


and gives them an opportunity to express their ideas and have them reviewed and thought about. Disney works hard at maintaining a culture where people feel safe about their ideas. It is acceptable to question management, and senior management teaches by example, by questioning and challenging each other. Management is straightforward with their employees and rewards creativity and original ideas. Disney encourages risk taking because they reward effort, even if some aspect of the idea is not feasible. Deadlines are also emphasized at Disney, and believed to be a key ingredient to creativity. By enforcing deadlines, management is assured of a starting point, and a springboard to the next idea. In addition, the hierarchy at Disney is not so structured that access is denied to all but top managers. Disney management is open to ideas from all levels of the organization, and this process is what makes the organization so successful. Disney’s consideration of both the creative and practical issues of production has built the organization into what it is today.

2. How would you describe Disney’s approach to decision making?Disney has a very democratic approach to decision making. Not only do top managers make

suggestions for new animation films, but anyone in the organization is allowed to do so as well. This diversity of contributors helps Disney to come up with new ideas continually. Everyone is welcome to evaluate ideas and alternatives, and management treats employees and their ideas with respect. Clear and immediate communication and straightforward discussions are essential aspects of the decision making process at Disney.

Disney also has a very collective approach to their work. No one person makes all the decisions, and everyone agrees on the goals and directions that the company will pursue. This does not imply that groupthink is at work, but rather, a collective effort is made to find the best ideas and reach a consensus after much discussion and debate.

Decision making at Disney is not all about creativity, however, and the production side of the business ensures that the projects are practical and economically feasible. Both production and creative teams work together to make Disney’s projects a success.


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